What The Street Is Saying After RH's Strong Q3 Print

Luxury home furnishing retailer RH (NYSE: RH), formerly known as Restoration Hardware, reported a blowout third-quarter earnings highlighted by a top-and-bottom line beat, an upward revision to management's fourth quarter and full year 2018 outlook, and encouraging 2019 guidance.

On Tuesday morning, the company said it intends to explore a potential offering of $300 million aggregate principal amount of convertible notes due 2023 in a private offering to qualified institutional buyers.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Wells Fargo's Zachary Fadem maintains an Outperform rating on RH with a price target lifted from $145 to $175.
• UBS' Michael Lasser maintains at Neutral, unchanged $150 price target.
• JPMorgan's Tami Zakaria maintains at Overweight, price target lifted from $155 to $180.
• Wedbush's Seth Basham maintains at Outperform, price target lifted from $145 to $160.
• KeyBanc Capital Markets' Bradley Thomas maintains at Overweight, price target lifted from $166 to $180.

Shares of RH were trading higher by 9 percent to $134.49 at time of publication.

Wells Fargo: 'Trifecta' Earnings Report

RH's earnings could be seen as a "trifecta" of good news, Fadem said in a note. The earnings print supports the thesis that the overall macro environment for RH remains favorable while management simultaneously moves quickly to shift itself to become a faster growing and more profitable business.

Management's fiscal 2019 guidance might be conservative as it assumes a prolonged trade war with China introduces 25 percent tariffs to some of its products, and a degree of "cushion" if the macro environment materially worsens.

UBS: 'Another Step Forward'

RH's earnings marks "another step forward" but certain aspects of the earnings report fell short of expectations, Lasser said. The company's 4 percent comp growth was short of the consensus estimate of 4.4 percent while the four-year stack slowed from 25 percent in the second quarter to 11 percent in the third quarter.

RH's management acknowledged a slowdown in luxury housing which impacted its same-store sales and this trend could continues generating "lumpiness" moving forward, the analyst wrote.

To warrant a bullish stance on the stock, the company needs to consistently show a healthy same-store sales growth. Otherwise the research firm's $150 price target fairly values the stock at 15 times calendar year 2019 EPS.

Related Link: Wells Fargo: Street Estimates For RH Are Too Low, Valuation Doesn't Reflect Growth Outlook

JPMorgan: 'Dislocation' In Valuation

RH's management guided its 2019 EPS 20 percent north of consensus estimates despite a slower housing market, Zakaria said. The company also sees upside to its previously announced low-to-mid teens operating margin target over time, which signals management's confidence in its ability to win market share and streamline its business.

The stock's multiple has moved lower heading into the third quarter print, but Zakaria said the earnings report suggests a "dislocation" versus reality. The firm's $180 price target is based on 17 time 2020 EPS estimates which represents a discount to the stock's three-year one-year out PE multiple of 22 times, while a comparable group of high growth retailers are trading at 20 times P/E on 2019 consensus estimates.

Wedbush: Transformation Continues

Beyond the headline numbers, RH showed continued progress in improving its business structure, Basham said. The company removed $28 million in annualized costs while it continues to prepare for "substantial" growth in the business. The company also continues to maintain a capital-light real estate strategy, which should allow it to meet its debt load in 2019 and 2020 while also buying back more of its stock.

KeyBanc: $5 Billion In Revenue 'Highly Achievable'

RH continues to be one of the most compelling growth stories under KeyBanc's coverage and the earnings report supports a long-term outlook where the company can double or even triple revenue and achieve a mid-to-high teens margins, Thomas said. If the company succeeds in expanding from 19 newer galleries to 70, it can achieve $5 billion or more in venue and generate more than $20 per share in EPS.

Photo by Restoration Hardware via Wikimedia.

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